Session10 11

PROJECT MANAGEMENT & ECONOMICS
SESSIONS 10 - 11
The Project Life Cycle
PROJECT LIFE CYCLE
DR ASSEM AL-HAJJ, Univation, RGU Project Management and Economics. SITP-SPDC, NIGERIA
100%
Slow finish
Quick momentum
Slow start
Time
The Project Life Cycle
120%
100%
% of Project completed
80%
60%
40%
Group 1 Group 2 Group 3
20%
Group 4 Group 5
0% 1 2 3 4 5 6 7 8 9
Time
Peak effort level
Time
Conception Selection Planning, scheduling, monitoring, control Evaluation & termination
Time Distribution of Project Effort
Peak effort level
Time
Childhood
Career selection
Adulthood: Work, marriage, family..
Old age
Termination
Time Distribution of Human Life Effort
THE PROJECT LIFE CYCLE PHASES

There is no agreement among industries, or even companies within the same industry, about the life-cycle phases of a project. This is because of the complex nature and diversity of projects.
LIFE-CYCLE PHASES DEFINITIONS

Engineering
Start-up Definition Main Termination
Manufacturing
Formation Build up Production Phase-out Final audit
Computer programming
Conceptual Planning Definition and design Implementation Conversion
Construction
Planning, data gathering and procedures Studies and basic engineering Major review Detail engineering Detail engineering/constr uction overlap Construction Testing and commissioning
Execute Execute
Analyse
Activity Management Schedule Loop

Plan
Finalise Schedule and Analyse Close-out

Execute Plan
Handover
Implement and Schedule Analyse Control

Execute Plan
DefinitionSchedule and Analyse Appraisal

Execute Plan
Design & construct Facilities
Analyse
Proposal Schedule and Initiation

Plan
Concept selection
Feasibility studies
Project Life Cycle

in Shell PM Guidelines
OVERLAP OF PROJECT LIFE CYCLE PHASES

Level of Activity
Executing
Planning Initiation Controlling Closing
Time
Understanding of phases permits managers and executives to better control total corporate resources in the achievement of desired goals.
1. CONCEPTUAL/INITIATION
PHASE
Includes the preliminary evaluation of an idea.
Preliminary goals & alternative courses of action are established. What for? What if? Can we do it? Can we afford it? Can we profit by it? Decision to continue or disregard idea.
Project evaluation includes consideration of:

preliminary analysis of risk resulting impact on the time, cost and performance requirements and potential impact on company resources.
Determine initial technical, environmental and economic feasibility and practicability of the project Examine alternative ways of accomplishing the project objectives Provide answers to the questions such as
What will the project cost? When will the project be available
CONCEPTUAL/INITIATION PHASE OVERVIEW

Goals & objectives
Problem or Opportunity
Scope Assess Risk

Agree Project Organisation
Estimate Effort & Cost
Profile Do Investment Analysis Initial Charter
Generate Workplan
Baseline for project scope Initial approaches for managing the project Initial issue management approach, project coordination approach, quality management, risk management, change management, training Initial Budget
Investment Decision Aiding Models

Every project is an investment and thus crucial to survival Effective selection/decision aiding models Models should reflect organisations ability Capable of simulating various situations Responsive to changes Easy to use Cost effective
Remember!
Models do not make decisions Partially represent reality Primarily based on financial goals Disregarding other factors Useful exercise
PROJECT SELECTION MODELS: NONNUMERIC

The Sacred Cow:
Project suggested by a senior or powerful official in the organisation i.e. the BOSS said. Project will be maintained until successfully concluded, or until the boss, recognises the idea is a failure and terminates it.
The Operating Necessity

Project required to keep the system operating (If the system is worth keeping)
The Competitive Necessity

Project required to keep the companys competitive position in the market
PROJECT SELECTION MODELS: NONNUMERIC The Product Line Extension

Project fits existing production line, fills a gap, extends the line in a new, desirable direction
Comparative Benefit Model

Selecting from many projects that are not easily comparable. Selection committee selects projects that will benefit the firm more Senior management examines projects with positive recommendations
PROJECT SELECTION MODELS: NUMERIC

ECONOMIC ANALYSIS APPROACHES Simple Payback Method Discounted Payback Method Average rate of return Net Present Value: Discounted cash flow Equivalent Annual Cost Method Internal Rate of Return Profitability index
Questions that must be answered

Over what period of time analysis should be carried out? i.e.life of the project. When is that time period to begin? What types of costs are to be included in the analysis, and what costs (if any) may be ignored? What analysis approach is to be used? What is a realistic discount rate for use in the analysis? How are the effects of inflation and increases in individual costs to be taken into account?
THE FORTH RAILWAY BRIDGE (1882-1890)

A spectacular manmade project: 54 000 tonnes of steel, 20 950 cubic metres of granite, 6 780 cubic metre of stone, 49 200 cubic metres of concrete, 50 tonnes of cement and 7 millions rivets. 57 workers died while building the bridge, and 4600 workers worked on the bridge at a peak period.
MAINTAINING THE BRIDGE

About 200 trains a day travel across it. The bridge has been well maintained over the years. Maintenance budget is about 1.4 millions per year, half of which goes for the painting bill. The bridge has been painted ever since it was built with conventional paints. Now a high performance epoxy polyurethane system.
THE TRADITIONAL APPROACH

Site CAPEX cost
THE CLIENT
Professional fees
Implementation cost
CONSEQUENCES
Little influence of operating costs (OPEX) on investment decisions Main criteria is minimum capital cost (CAPEX). Overall economic objectives of project are not made clear.
Site cost THE CLIENT Capital cost

Professional fees
CAPEX
occupancy cost
Operating costs
Safety
Furnishings
Maintenance costs
Abandonment
Energy costs
OPEX
TOTAL LIFE CYCLE COST
DEFINITION OF LIFE CYCLE COSTING

.. the technique of considering the total cost of ownership of an item of material, taking into account all the costs of acquisition, personnel training, operation, maintenance, modification and disposal, for the purpose of making decisions on new or changed requirements and as a control mechanism in service, for existing and future items.
The consideration of the cost to the client of products and systems over the whole life of a building
LCC MAJOR BENEFITS

Alignment of investment/design decisions with corporate and business objectives Permits the economic assessment of alternatives Assists in assessing the economic consequences of using and/or operating an asset, system with comparison with other alternatives. Reduced total cost of ownership: can offer cost efficiency, improved performance and useful feedback.
LCC MAJOR BENEFITS

Increases reliability of operating systems & ultimately reduces risk of unexpected operating and maintenance costs Facilitating a framework for effective choice between alternative designs and options at all stages Cost-significant areas can be identified & selected for attention. Forces designers to think and plan ahead for the future.
TRADITIONAL
COST
COST
LCC
Capital cost
Capital cost
Disposal cost OPERATION & MAINTENANCE COST
OPERATION & MAINTENANCE COST
TIME
TIME
Physical
THE LIFE
Legal
PROJECT LIFE CYCLE COST COMPONENTS

CAPITAL COST
CAPEX Acquisition Design Management Construction Manufacturing Installation
OPERATING COST
OPEX Operation Inspection Maintenance Alterations Replacements Safety Support equipment
ABANDONMENT COST
Demolition
Removal
Dislocation Disposal Retirement Resale
Downtime cost

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PROJECT MANAGEMENT & ECONOMICS

PROJECT LIFE CYCLE

The Project Life Cycle

Group 1 Group 2 Group 3

Peak effort level

Time Distribution of Project Effort

Peak effort level

Adulthood: Work, marriage, family..

Time Distribution of Human Life Effort

THE PROJECT LIFE CYCLE PHASES

LIFE-CYCLE PHASES DEFINITIONS

Activity Management Schedule Loop

Finalise Schedule and Analyse Close-out

Implement and Schedule Analyse Control

DefinitionSchedule and Analyse Appraisal

Design & construct Facilities

Proposal Schedule and Initiation

Project Life Cycle

OVERLAP OF PROJECT LIFE CYCLE PHASES

Planning Initiation Controlling Closing

Project evaluation includes consideration of:

CONCEPTUAL/INITIATION PHASE OVERVIEW

Scope Assess Risk

Estimate Effort & Cost

Profile Do Investment Analysis Initial Charter

Investment Decision Aiding Models

PROJECT SELECTION MODELS: NONNUMERIC

The Operating Necessity

The Competitive Necessity

PROJECT SELECTION MODELS: NONNUMERIC The Product Line Extension

Comparative Benefit Model

PROJECT SELECTION MODELS: NUMERIC

Questions that must be answered

THE FORTH RAILWAY BRIDGE (1882-1890)

MAINTAINING THE BRIDGE

THE TRADITIONAL APPROACH

Site cost THE CLIENT Capital cost

TOTAL LIFE CYCLE COST

DEFINITION OF LIFE CYCLE COSTING

LCC MAJOR BENEFITS

LCC MAJOR BENEFITS

OPERATION & MAINTENANCE COST

PROJECT LIFE CYCLE COST COMPONENTS

CAPEX Acquisition Design Management Construction Manufacturing Installation

OPEX Operation Inspection Maintenance Alterations Replacements Safety Support equipment

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